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Participation in supplementary pension savings in Iceland

Author

Listed:
  • Asgeir Danielsson
  • Rannveig Sigurdardottir
  • Svava J. Haraldsdottir

Abstract

We analyse participation in supplementary pension savings in Iceland using microdata on every person, aged 16 and over, registered in Iceland in 1999-2017. Although sizeable subsidies are offered, a large share of those eligible do not participate. The significant increase in subsidies in 2014 did affect participation, although less than expected. We find that women participate significantly more than men, apart from the youngest and oldest age groups. The difference between women and men is larger for single persons than for couples. It is also larger for those with only primary education than for those with tertiary education. The subsidies are such that the rate of return on the savings increases with age. Despite this, we find that participation rates are nearly constant between age 30 and age 60, whereupon participation starts to decline at around the time the savings can be withdrawn. We observe a significant correlation between the decision to start withdrawing funds and the decision to stop participating. Estimating equations for wage income using cross-sectional data, we find the usual concave (Mincer) shape, except for people in their late sixties, whose average wage income starts to increase, reflecting the tendency among higher-income people to retire later. We discuss the problems caused by the correlation between income and education, and between income and gender, and we use two-stage probit least squares to test for exogeneity of income.

Suggested Citation

  • Asgeir Danielsson & Rannveig Sigurdardottir & Svava J. Haraldsdottir, 2023. "Participation in supplementary pension savings in Iceland," Economics wp91, Department of Economics, Central bank of Iceland.
    • Handle: RePEc:ice:wpaper:wp91
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    References listed on IDEAS

    as
    1. Tabea Bucher-Koenen & Rob Alessie & Annamaria Lusardi & Maarten van Rooij, 2021. "Fearless Woman. Financial Literacy and Stock Market Participation," Working Papers 708, DNB.
    2. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249, Elsevier.
    3. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1149-1187.
    4. Svend E. Hougaard Jensen & Sigurdur P. Olafsson & Thorsteinn S. Sveinsson & Gylfi Zoega, 2022. "Mapping educational disparities in life-cycle consumption," Economics wp89, Department of Economics, Central bank of Iceland.
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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